The policy-making elite have waved away the notion that they were acting ideologically, rather merely doing what works. But you can only get away with that claim if what you are doing is actually working. Since the crash, central bankers, politicians, TV correspondents have tried to reassure the public that this tweak here or those billions there would do the trick and get the economy right again. Now the technocrats in charge of the system are slowly, reluctantly admitting it is bust. You hear it when the Bank of England, Mark Carney sounds the alarm about, “low growth, low inflation, low interest rate equilibrium.” The “neoliberal agenda” has not delivered economic growth for all – it has only made a few people better off.1 Neoliberalism has outlived the socioeconomic conditions that gave rise to its existence.We need to seek an answer to this challenge with new ways of thinking, and introduce solutions to re-distribute capital.
As long as profits rose, capitalists had accepted an accord with labor where workers received a share of the rising production in return for labor peace. But when profit margins grew smaller in the 1970s, they sought to reduce the share of value going to the workers. Turning to neoliberal ideology, corporations increasingly moved production offshore in order to utilize low-wage labor in the Global South. Both Democratic and Republican politicians alike embraced neoliberalism that freed capital from democratic social restraints. Neoliberal policies provided a temporary fix for the crisis on profit while accelerating the underlying systemic crisis of over accumulation. So, another ‘fix’ was deployed. Rather than investing money in production, the economic elite speculate with it by buying debt. The stream of interest on that debt is then counted as profit, even though no new value was created. Capital accumulated in this way is ‘fictitious capital’ as money that does not represent any products of social labor.
This speculation drives up the price of debt until the Ponzi scheme collapses, as we saw in 2008. Then the state, acting as insurer of last resort, stepped in to save the financial system with a massive bailout that restored liquidity to the banks so that they could continue to function without worrying about moral hazard. In tandem, neoliberal lobbyists ensured doubling down of the neoliberal agenda of austerity to address the economic slump. And the longer the slump went on, the more the public twigged to the fact that not only has growth been feeble, but ordinary workers have experienced much less of its benefits. Along with the loss of apparent social mobility and fairness, appeared a crisis in established institutions ranging from elected politicians, the media, Wall Street banks and corporations. Donald Trump, the so-called anti-establishment candidate, was not elected to govern, but to shake up the system.
In 2016 the American electorate opened the door for an offensive of capital to dismantle the remnants of social democracy and impose unbridled neoliberal ideology. Voters driven by despair over the effects of neoliberalism ended up with a neoliberal administration. By deconstructing the administrative state with department heads opposed to the mission of their agencies Trump seeks to free capital of social responsibilities. That has been followed by a massive tax reduction for corporations and the wealthy that will further starve the government of revenue needed to carry out essential functions. The problem now is no state able to restrain capital from its fatal excesses. The answer to build an alternative to the neoliberal ideology will not be by petitioning the economic elite to fix things for us, rather it will be by citizens participating in the challenge of the task of creating new institutions that better serve the needs of the community.
By 2019 many thinkers agree that prevailing neoliberal policy framework has failed society, resulting in monumental and growing income gap. The discipline’s focus on markets and incentives, methodological individualism, and mathematical formulism all seem to stand in the way of meaningful, larger-scale economic and social reform. In short, neoliberalism appears to be just another name for economics controlled by an existing economic elite. It appears that many of the dominant policy ideas of the last few decades are supported neither by sound economics nor by good evidence. This leads one to conclude that it is necessary to spend more time on the analysis of market failure and how to fix them rather than defer to the magic of competitive markets. The answer must address the growing concentration of wealth, the costs of climate change, the concentration of important markets, the stagnation of income for the working class, and the changing patterns in social mobility.
While schools of economics do not necessarily have the answer, we need economists to provide the tools needed to lay out the trade-offs, thus contribute to a more informed democratic debate. Sandra Black and Jesse Rothstein identify the best modern economics to provide a contemporary restatement of an old idea: government should provide public goods and social insurance. Social insurance mitigates the wide-spread and well-known failures in insurance markets to provide adequate cover, in the form of unemployment insurance, social security, and health insurance. And education requires government provision because children are generally in school before the peak income of their parents, and because parents cannot borrow against earnings of their children. The benefits of education are also in the far future and are associated with externalities in crime, citizenship, innovation. All this militates in favor of government provision of education and social insurance.
There is too much money chasing the wrong returns, Ian Welsh observes, “Money is a social creation, it is permission to tell people what to do. You do not give permission to those who use it badly …”, basically, “Do not give free money to people who are not spending it in ways beneficial to society as a whole.” The Citizens United decision legalized a system of imbalance of power. The evidence of the matter is that human behavior defies economic and political theory-making. The generalization that people and organizations act in their political interest might be true, but predicting what that might mean in practice is impossible, because there are even more political variables than economic. The consequence is a failed ideology – oligarchs and their apologists have corrupted, twisted and shaped various economic theories to protect and perpetuate their own privileged positions of power.2
What is the face of failed ideology? Income also plays a role in whether workers can participate in a retirement plan. The less money you earn, the less likely you are to have access to any kind of retirement plan. Many seniors now find they are stuck with lives of never-ending work – a fate that could befall millions in the coming decades. A lot of people in their mid-60s find themselves significantly downwardly mobile as they grow older. Many are going from being nearly poor to poor. If today’s seniors are struggling with retirement saving, what will become of people of working age today, many of whom hold unsteady jobs and have patchwork incomes that leave little room for retirement savings. More now rely on social security, that provides about 40 percent of average wage earners income when they retire, while financial advisers say that retirees need at least 70 percent of their pre-retirement earnings to live comfortably.
“We need to remember that the work of our time is bigger than climate change. We need to be setting our sights higher and deeper. What we are really talking about, if we are honest with ourselves, is transforming everything about the way we live on this planet”, observes, Rebecca Tarbotton, Executive Director of the Rainforest Action Network 1973-2012. To tackle global climate change requires reorientation of the national economy from growth based on consumption to a paradigm that is both sustainable and psychically enriching, a profound and lasting reversal of the trends towards concentration of economic power and growing wealth and income disparities. Only the development of a new political-economic system and social order will allow us to overcome the institutional power of neoliberal capitalism. We must begin the journey, a third way, on a road less travelled that leads to new ways of thinking.
We need to set aside the neoliberal dogma of the last 40 years. The answer includes a two-prong approach employed simultaneously to (i) balance asymmetries of power and level the field through unions and wage boards, and (ii) re-distribute capital by reuniting capital and labor in co-operative enterprises. Victor Hugo (1802-1885) promoted the ownership economy (cooperative enterprises) in Les Misérables. The co-operative movement is a social and economic movement which emerged in Europe as a reaction to early 19th century industrialization. Cooperatives have an important role to play in reducing poverty and generating employment. By their nature, cooperatives, owned and run their members, are strongly invested in the communities they serve, making them an important partner in ensuring environmental responsibility. Victor Hugo observes, “The future has several names. For the weak it is impossible; for the faint-hearted it is unknown; but for the valiant it is ideal.”
1 Aditya Chakraborty. (31 May 2016) You’re witnessing the death of neoliberalism – from within. https://www.theguardian.com/commentisfree/2016/may/31/witnessing-death-neoliberalism-imf-economists
2 Ian Walsh (26 Nov 2013) Too Much Money Chasing the Wrong Returns. https://www.ianwelsh.net/too-much-money-chasing-the-wrong-returns/